Stuart Binnie, Associate Director at Rund discusses the strengths, opportunities and challenges of purpose-built student accommodation (PBSA) – as seen on React News.

Throughout the turbulence of the pandemic and the oscillating economy, purpose-built student accommodation (PBSA) has perhaps been the only sector to compete with BTR in terms of stability and constant growth. In 2022, student accommodation made up 45% of all residential deals, with BTR not far behind. The resilience and strength the UK PBSA sector has continued over to attract global interest into the asset class, catapulting the sector onto an international stage, with significant institutional capital. This has come at a time of massively increased investment in the living sector, with data from Knight Frank confirming that 75% of investors are looking to ‘significantly increase’ their total investment during the next five years.

In spite of the robust recession-proof demand, though, student accommodation has been hampered by the increasingly expensive cost of construction. Due to the rising cost of materials and labour, driven by inflation and the cost of living, many developers have been put off by comparatively weaker returns on their initial investment. The rising cost of living has also seen higher operating costs for PBSA schemes: many operators include bills in their tenants’ rent, and with higher energy bills these companies have been forced to raise rents or take losses. Though, looking ahead – this should hopefully be a temporary concern, as inflation starts to recede.

A more pressing challenge which isn’t so easily remedied, is the restrictions imposed by the planning system which have caused historic roadblocks in the growth of PBSA. Although some areas such as Manchester, Portsmouth and Bournemouth have had planning policies specifically relating to student accommodation in place for some time, there are many inconsistencies across the board that restrict growth. For example, many areas do not adequately take into account the demand for student housing when making planning decisions. Until a standardised policy comes into effect, these inconsistencies will remain, and stunt the speed of growth for a sector bursting at the seams.

While these hurdles are significant, some areas are continuing to thrive. After all, according to a Knight Frank survey, 50% of students said that the availability of accommodation had influenced their decision of where to stay. Take Birmingham for example, a renowned university city with no shortage of PBSA investment. Recently, Alumno, a Singaporean developer, broke ground on its £24m Dogpool Lane regeneration project in February. This brownfield project, designed in the vernacular of Birmingham’s iconic red brick buildings, promises 167 beds for students. Only last month, plans were greenlit for MRP and Vita’s Gough Street PBSA development, a tower containing a total of 540 student beds, as well as private dining rooms, a gym and an outdoor terrace. These impressive developments highlight that, in spite of broader socio-economic trends, the PBSA market is still driving forward.

Many universities have experienced a widely reported shortage in the amount of housing available for their student bodies, frequently leading to students being forced to live out of town. These hotspots have such intense demand that PBSA developments are made instantly viable – a ripe opportunity for developers. For example, last year in Liverpool many students were asked to live in neighbouring Manchester, a 40 minute commute from campus, due to a shortage in available housing. PBSA developments can fill the gaps in towns such as this, while also lessening competition on the broader rental market. Another area which is becoming a hotspot for PBSA developments is Sheffield. Sheffield is well-known for its universities, The University of Sheffield and Sheffield Hallam University. Many students are having to book their accommodation almost 12 months in advance. However, last year council officers from Sheffield City Council claimed that the city already has an “excess of student accommodation”. The comments were made in advice to a developer planning a block of 378 student apartments near Sheffield Parkway.

Conversely though, in university towns there is also a challenge in balancing the need and demand for PBSA, without over-concentrating certain areas. Modern day urban planning and regeneration are centred on creating places, with access to opportunities, a high quality of life, and a welcoming and inclusive atmosphere for people from all backgrounds. This is what helps communities thrive and flourish, as it is no secret that the design of neighbourhoods has a crucial impact on the happiness of people and the wellbeing of communities. However, areas which are saturated by PBSA, risk the inability to create established and well lasting communities, given the transient nature of the student population.

With this in mind, Warwick District Council has set out prescriptive criteria for PBSA in its Local Plan. Coventry City Council however, in recognising the regeneration benefits that PBSA investment can offer, is encouraging PBSA schemes which can ‘play a part in the regeneration of the immediate neighbourhoods without disadvantage to local services’ – as cited in its Local Plan. As experts in the East and West Midlands, we see the differing approaches to PBSA from all the local authorities, and are best placed to help guide developers to unpick these challenges from region to region.

Overall, PBSA has cemented itself as a recognised sub-sector of the residential market, but it is certainly not without its own needs and challenges. The varied PBSA policy landscape is at the core of these challenges, with local authorities demonstrating varied experience in the processing and management of these development proposals. And whilst generally, local authorities are in support of the delivery of PBSA, the lack of central planning policies to support the nationwide demand and growth of the sector, will continue to be a problem for developers, going forward.